The bomb targeted diners breaking their fast at a popular outdoor eating area of the upper middle class district.

The Muslim world is currently observing Ramadan, a month-long festival when people refrain from eating between sunrise and sundown, often coming together to eat at night.

Local residents are reporting on social media the bomb targeted an ice-cream shop popular with families.

Quoting hospital and police officials, the Associated Press reported the Islamic State terrorist group has claimed responsibility for the attack, which Iraqi officials said involved apparently remotely detonated explosives inside a parked car. The officials spoke on condition of anonymity in line with regulations, AP said.

Graphic videos posted to social media showed chaotic scenes on the streets surrounding the blast. A number of wounded lay on the ground, others propped themselves up on the colourful park benches outside the ice-cream shop. One young girl, wearing a ribbon and bow in her hair, wandered the scene dazed, AP said.

Last year, more than 120 people were killed and more than 200 were injured in a bombing and ensuing fire at a shopping centre in Karrada. IS also claimed responsibility for that attack, saying it had targeted Shiite Muslims.

The attack comes just hours after an Iraqi Shiite force backed by Iran said it had pushed Islamic State out of several Iraqi villages on the border with Syria.

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The territory taken by the Popular Mobilisation force on Monday is located north of the IS-held town of Baaj. The group is taking part in the US-backed Iraqi campaign to defeat IS in the city of Mosul and the surrounding province of Nineveh.

In a statement on its website, Popular Mobilisation described its advance to the border with Syria as "a Ramadan miracle".

Iraqi commanders say the offensive, which recently entered its eight month, will mark the end of the IS caliphate in Iraq, but concede the group will most likely increase insurgent attacks after military defeats.

- with Reuters, AP